What Is Judgment Proof?
Let me explain what judgment proof means to you. Judgment proof, or judgement proof, describes someone who doesn't have enough income or assets to cover a court judgment against them. If you're broke and unemployed, you might fit this category, or if your only assets and income are in legally protected areas.
Key Takeaways
- Being judgment proof usually involves having few assets and low earned income.
- Creditors can't seize assets or garnish income from someone who's judgment proof.
- Incomes like Social Security, child support, and unemployment benefits generally can't be garnished by creditors.
- Assets such as your home are often exempt from seizure.
- Judgments can stay valid for many years and get renewed, so if your finances improve, you might still have to pay the debt.
Understanding Judgment Proof
Laws vary by state, but generally, you need to meet two criteria to be judgment proof. First, you lack adequate income—if you're unemployed or in a low-paying job just scraping by, that counts. Certain incomes are exempt from garnishment, including court-ordered child support, alimony, Social Security, unemployment benefits, and disability payments.
The second criterion is lacking assets like bank accounts or real estate that creditors could take. In many states, your home and some possessions are protected from collection.
If you're judgment proof, creditors can't collect what they're owed. This is temporary until you earn enough to start paying debts, if that happens.
Most lawyers tell debtors like you not to respond to debt collectors if you think you're judgment proof, unless sued—then answer the lawsuit and inform the court of your status.
Here's a warning from the Legal Aid Society of New York City: Be careful, because a company or their attorney might try to get you to agree to a settlement, payment plan, or stipulation voluntarily. If all your income is judgment proof, you don't have to agree, as it's protected by law.
Judgment proof isn't permanent. Judgments last many years, and creditors can keep trying to collect. They can stay on your credit report longer than typical debts.
You might hear it called 'collection-proof,' which is more accurate—it doesn't stop judgments but prevents collection.
Important
State laws decide how much of your wages and which assets can't be collected, even with a judgment against you.
Example of Judgment Proof
Consider Charlie, who gets too sick to work and uses a credit card for living expenses and medical bills for a year. Charlie recovers, returns to work, but can't repay the debt. The credit card company sells the debt to a collection agency after failed collections.
The agency contacts Charlie repeatedly, but Charlie doesn't pay—they're barely managing their house, groceries, and bills. The agency sues and gets a judgment.
But Charlie earns just above minimum wage, so wages can't be garnished. Their state protects the primary residence, so no lien on the house. No bank money, no car or other seizable assets—Charlie is judgment proof now.
If Charlie's finances improve next year with higher earnings, the agency could garnish wages then. Judgments last long and can be renewed, so collection might happen years later.
Can You Declare Bankruptcy if You're Judgment Proof?
Yes, you can file for bankruptcy even if judgment proof, but there's little point if your assets are already protected or you have none. If your situation improves and you're no longer judgment proof with assets to protect, bankruptcy might be worth discussing with a lawyer. It offers finality, unlike lingering judgments.
Bankruptcy hurts your credit score significantly. Debt relief or credit counseling might be better long-term, damaging credit less than bankruptcy.
How Do You File for Bankruptcy?
File by submitting a petition to a federal bankruptcy court. You don't need a lawyer, but the government strongly recommends one due to long-term financial and legal impacts.
What Are the Types of Bankruptcy for Individuals?
Individuals usually file Chapter 7 or Chapter 13. In Chapter 7, a trustee sells non-exempt assets, then most debts are discharged. In Chapter 13, you keep more assets but follow a court-supervised repayment plan over three to five years.
The Bottom Line
Judgment proof is a misnomer—it doesn't shield you from judgments but from creditors seizing property or garnishing income. Remember, it's not permanent; if your finances get better, you could have to repay the debt.
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